The following are problems specific to valuation of convertible bonds:
A) dividends
B) dilution
C) changing bond value|
D) all of the above

Question

Quizplus · Accepted Answer

A) Dividends are a problem in convertible bond valuation because the conversion ratio changes if the company paying the dividends is also the issuer of the convertible bonds. 
B) Dilution is a problem as the conversion of the bonds into equity can lead to an increase in the number of shares outstanding and dilute the ownership stake of existing shareholders. 
C) Changing bond value can be problematic because as the value of the underlying stock changes, the value of the bond will also change, making it difficult to determine an accurate valuation. Therefore, all of the above problems are specific to valuation of convertible bonds.

The Following Are Problems Specific to Valuation of Convertible Bonds